Garment exporters in Bangladesh are advocating for the National Board of Revenue (NBR) to permit the local sourcing of raw materials free of cost (FOC). This request comes in light of recent policy changes that allow exporters to import raw materials internationally on an FOC basis, a benefit that currently does not extend to local suppliers.
Industry Concerns
Leaders within the ready-made garment sector emphasize that removing restrictions on local FOC sourcing would not only enhance domestic sales but also fortify backward linkage industries. This shift could significantly increase the overall value addition within the export-driven garment industry.
The Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) conveyed these concerns in a letter addressed to the NBR on April 9. The association urged the government to eliminate existing barriers and provide clearer guidelines regarding local sourcing.
Local Suppliers’ Capabilities
The BKMEA pointed out that numerous local suppliers are now capable of fulfilling orders from international buyers. In many instances, foreign buyers or their designated agents are willing to supply materials free of cost through local vendors for use in export production. However, the lack of clear policy on whether these transactions qualify as “deemed exports” has introduced uncertainty, hampering manufacturers’ ability to utilize locally sourced FOC inputs.
Aligning Policies
The BKMEA believes that aligning local sourcing regulations with existing rules for imported FOC materials would enhance the efficiency and competitiveness of export operations. They advocate for allowing exporters to leverage locally sourced inputs under a cutting, making, and trimming (CMT) model to further streamline production processes.
Challenges for Exporters
BKMEA President Mohammed Hatem expressed that exporters face significant hurdles when buyers nominate local suppliers to provide FOC raw materials. The absence of a defined order framework complicates the approval process, leading to delays and inefficiencies. Hatem noted that these restrictions are detrimental, as they limit opportunities for local suppliers and diminish the potential for value addition within Bangladesh.
He provided a practical example: if a $100,000 export order includes $60,000 worth of locally sourced FOC inputs, it would substantially decrease reliance on imports, thereby benefiting local industries.
Expert Opinions
Industry experts have also raised questions about the logic behind the current restrictions. Md Lutfor Rahman, a former member of the NBR’s customs policy wing, pointed out that there seems to be no rational justification for permitting FOC imports while simultaneously restricting similar arrangements for local sourcing. He argued that with proper monitoring, the risk of misuse would be minimal, and allowing local sourcing would foster the growth of domestic industries.
Policy Shifts and Implications
Previously, the government issued a statutory regulatory order that allowed exporters to import raw materials on an FOC basis without prior limitations, following demands from the sector. However, the exclusion of local sourcing from this framework has resulted in an imbalanced policy environment, raising concerns among industry stakeholders.
Attempts to reach the NBR chairman for comments on this matter have been unsuccessful, leaving many questions unanswered about the future of local sourcing regulations.
Conclusion
The call for policy reform regarding local raw material sourcing highlights a significant gap in Bangladesh’s garment export strategy. By enabling local suppliers to operate under similar FOC provisions as their international counterparts, the government could unlock substantial growth potential for the industry. This change would not only bolster domestic suppliers but also enhance the overall competitiveness of Bangladesh’s garment sector on the global stage.
- Takeaways:
- Local sourcing of raw materials could enhance the garment industry’s value addition.
- Aligning local and imported FOC sourcing policies may streamline operations.
- Industry leaders call for clarity and removal of barriers to local sourcing.
- Experts question the rationale behind current restrictions.
- Addressing these issues could significantly benefit Bangladesh’s economy.
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